(Bloomberg) -- The Commerce Department has set aside $500 million in government grants for smaller companies in the semiconductor supply chain, as the US seeks to beef up domestic production of critical electronic components and reduce reliance on Asian production lines. 

The funding, which is open to projects that cost less than $300 million, is meant to cover a small percentage of costs for a range of firms, a senior Commerce official said, asking not to be identified detailing an announcement that’s set for Friday. 

More than 500 companies across 42 states have expressed interest in about $100 billion in grants and loans from the Chips Act signed into law last year. The Commerce Department’s challenge is how to split what is a lot of taxpayer money but a small amount in the scale of the chip industry. 

The Chips Act includes $39 billion in direct company grants — not much more than one year’s capital spending by a single major chipmaker — and $75 billion in loans and loan guarantees. There’s also $11 billion set aside for research and development that will be made available later in a third offering.

The vast majority of the grant pool will be reserved for larger projects that had an earlier round of applications, including both supply chain and chip production facilities — like those under construction by Taiwan Semiconductor Manufacturing Co. and Intel Corp., which are seeking awards in the billions. 

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Smaller companies have been waiting for their opportunity to apply for funding, a process that will be less intensive than that for chipmaking giants, the senior official said. Todd Fisher, chief investment officer for the chips office, said in an interview this month that many of the hundreds of interested companies will be vying for a share of this second pool of money. 

“We spend a lot of time focused on the very biggest companies — Intel and the like — which are important,” Commerce Secretary Gina Raimondo said in a press briefing. “But the reality is so much of the supply chain, the upstream supply chain and the semiconductor industry, are small companies all around the country, and they can apply for this money to construct, expand or modernize their facilities.” 

There are significant differences in how awards will be made to big versus small firms: Smaller supply chain companies are eligible for grants but not loans, according to the senior official. The government loan process is administratively complex, the official said, so the agency is reserving it for large projects — while smaller companies need more help with upfront costs. 

The application process is also designed to be less burdensome for those companies, the official said, with fewer criteria and an initial screening round. Applicants will be asked to submit a concept plan, and Commerce will invite the most promising firms to go forward with a full application.

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